Orange Belgium SA

XBRU:OBEL

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, welcome to the Orange Belgium 2018 Q3 financial and commercial results. [Operator Instructions] I would like now to hand over to Mrs. Ana Castano. Madam, please go ahead.

[Ana Catalina Castaño Lopez, Investor Relations Expert]

Thank you, Operator. Good morning, everyone. This is Ana Castano. I am your Investor Relations contact at Orange Belgium. I would like to welcome you to our third quarter 2018 conference call. We have on the call Michaël Trabbia, our CEO; and Arnaud Castille, our CFO.As usual, you should have all received our final communications this morning. The information is also available on our website. A Q&A session will follow right after Michaël's and Arnaud's opening statements.That said, I am pleased to leave the floor to Michaël.

[Michaël Trabbia, CEO & Executive Director]

Thank you, Ana. Welcome, ladies and gentlemen. I would like to start by highlighting some of our key achievements of the third quarter of 2018. If you remember well at the earnings call of the first quarter this year, I spoke about Orange Belgium's positioning as a bold challenger. Our ambition is to challenge the status quo in the Belgium market in convergence and mobile-only. We want to lure our customers to use more and more data and give them an enhanced customer experience.So we listened to the Belgium customers and their unmet expectation for simple and worry-free offers. In February, Orange was the first and the only one to date to introduce a full unlimited offer, both on mobile and on convergence, with our high-end Eagle offer. In June, we extended this approach by granting unlimited voice, combined with a good data bundle to the vast majority of our customers with our mid-end offers Koala and Cheetah. Those offers have managed to stimulate the mobile data usage of our customers, which, as you know, in Belgium is a little bit lower. This led to an accelerated growth by 73% year-on-year, reaching 2.9 gigabytes in September. Now I am pleased to report the commercial results during this quarter. Our mobile operation had a very strong performance. Our contracts net additions reached 53,000, the best performance since 2014. This is 2x more than our Q2 net adds and more than 3x more than our Q3 net adds last year. We reached this performance while preserving our mobile-only ARPU, which is almost stable year-on-year at EUR 21.8, thanks to an improving subscriber mix, while the out-of-bundle decreased. We also registered an encouraging stabilization of our prepaid customer base in Q3.I am equally satisfied with the continued strong momentum in the convergence segment. Our cable customer base increased by 89.4% year-on-year, to 155,000 customers. This represents 19,000 net additions during the quarter, compared to 14,000 in Q2 and 18,000 in Q3 last year. I wish to highlight that this solid performance was achieved without any price promotion this year, which also helped increasing our convergence ARPU. This confirms that our Love convergence plan is attractive and competitively priced. In addition, an increasing number of mobile customers are adding a Love package to their subscription. This now represents 10% of our total mobile customers.Before handing over to Arnaud, I want to mention that we continue to focus on customer experience. We particularly improved the indoor coverage of our customers, thanks to our [ central ] solution and the launch of voice over WiFi and voice over IT. In Q3, we started to check systematically the indoor coverage of all our new convergent customers and provide them with a solution when needed.Now I would like to hand over to Arnaud for this quarter's financial review and the guidance for the full year of 2018.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Thank you, Michaël. So, Orange Belgium's financial results are also indicative of its strong commercial success. Q3 '18 revenues grew 1.5%, to EUR 318 million. However, retail service and convergence service, in particular, was the main growth driver. Retail service revenues grew 10.1%, to EUR 199.1 million. Convergence revenues doubled due to a higher customer base and a growing ARPU.Adjusted EBITDA for the quarter was EUR 81.4 million. This represents a year-on-year growth of 2.2%. The improvement was driven by increasing revenues and cost management. On the revenue equation, our subscriber base includes an increasing share of high-value customers.On cost management, we continue to focus on the convergence operations. We were able to reduce the EBITDA loss of the business, from EUR 5.2 million in the third quarter of 2017 to EUR 4.3 million this quarter. We achieved that despite a growing convergence subscriber base. The improvement was achieved through operational efficiency, better churn management and a reduced wholesale price of EUR 20.29 implemented on August 1.Net debt amounted to EUR 254 million, compared to EUR 288.3 million at the end of 2017. Gearing remains low, with net debt to EBITDA, 0.9.We maintain our financial guidance for the full year 2018. Based on 9 months 2018 results, you can see that revenue growth continues to track perfectly our guidance of slight growth compared to 2017. With respect to the adjusted EBITDA, we remain comfortable we will reach our target of EUR 275 million to EUR 295 million. We also expect 2018 core CapEx to be stable compared to 2017.Before concluding, I want to thank you, Siddy Jobe, for the very good job he has done since 2013. And for your information, you are hiring a new head of IR, who will be with us for the next conference call.With this, I conclude the presentation. Michaël, Ana and I are ready for your questions. Operator, may I ask you to now open the call for Q&A?

[Operator]

[Operator Instructions] We have 1 question, from Mr. Paul Sidney, from Crédit Suisse.

[Paul Sidney, Research Analyst]

I just had three quick questions, please. Obviously, you've seen some very strong growth in data usage among your data users. And I was just wondering are you actually seeing customers physically moving or calling you up and moving, asking to be moved to higher tiers? Is that finally working in the Belgian market, given the level of data usage growth?And secondly, really sort of following on from that, one way of protecting against a fourth entrant in the Belgian mobile market would be to move increasingly to unlimited plans or just very big data bundles to sort of offset that threat. I was just wondering, is that something you're thinking about? Or is it perhaps even a little bit too early given the uncertainty around a potential fourth entrant?And just lastly, I think in the past you've given us some detail around the loss per converge customer in terms of the economics. You've obviously seen some better efficiency improvements in Q3. So could you give us a bit of detail around the economics of the converged offers in Q3 and how that compares to Q2?

[Michaël Trabbia, CEO & Executive Director]

I will answer the first question on the data usage, and I will let Arnaud answer the question on the loss per customers relating to convergence.So yes, the data usage increases strongly to something that we want. It is something that we stimulate. It is really linked to our positioning. And yes, this results in an improving subscriber mix, meaning that our customers, we manage to attract our customers to higher-end offers while we know that the majority of our customers were rather in the low-end offers.This is mitigated partially by the fact that the out-of-bundle decreases. So that results in an ARPU that is more or less stable. But this is something good, because at the end of the day our customers are much more happy with paying their contract and their bill that is stable, with no surprise. And this results, as you have seen, in very strong net adds, which are the results both of new customers, new sales and also an improving churn.Now this strategy and those offers, they are not related to the fourth entrant. This is our positioning and this is the strategy we are pursuing independently on the potential threat of a new entrant. So this is absolutely clear.Now on the fourth entrant, as you mentioned, it is a little bit early to comment on the probability on the fact that there will be or there will not be a fourth entrant. But in any case, we will continue our strategy and our positioning on the market.Now I'll let Arnaud answer on the convergence.

[Arnaud Marie Julien Castille, Chief Finance Officer]

On the convergence and your question was on the unitary costs per customer and per month for our convergence customers and cable. So yes, it's improving. And remember we disclosed a unitary cost per customer per month of close to EUR 16 per month. Now we are at EUR 13, EUR 13 per customer per month.This improvement is due to, first, the ARPU which is increasing. And now we are close to EUR 38 per customer on the cable side. So it's an improvement, without VAT. And of course there is an improvement of the wholesale price since August 1. And after that with some economy of scale and improvement of our processes, we are decreasing our indirect cost on customer service, mainly on customer service.So yes, we are quite happy with this minus EUR 13 per customer. And for sure, we are going to continue to improve this unitary cost until the end of the year. And of course we are waiting for a new cost-plus cost for maybe Q3 2019.And again you know we expect to have a wholesale price close to EUR 15 per month.

[Operator]

We have another question, from Daniel Morris.

[Daniel Morris, Research Analyst]

I've got a couple, please. Firstly, on network capacity, I just wonder now that Telenet has fully migrated off, can you give us a bit more color on quantifying the kind of excess network capacity you're seeing in mobile? And related to that, do you still see a need for stable CapEx this year? It's obviously been declining a little so far. And then related to that, as we look into 2019, is there an opportunity for CapEx savings given a lower need for mobile capacity upgrades? So, that's a rather long first question.My second question, somewhat related, we've obviously just had this Brussels agreement on emissions limits which looks like a modest improvement in the transmit power you can do. Does that really move the needle at this stage? And is there a possibility of a very significant shift? I think there's a discussion of 40 volts per meter, which looks like it could benefit on the CapEx side, as well.

[Michaël Trabbia, CEO & Executive Director]

So on the first one, it is true that our CapEx and our network CapEx in 2018 are really under control, and this is in line with our guidance of stable core CapEx. So we have the capacity to provide with those offers and with the increasing data usage of our customers. This is obviously partially supported by the leaving customers from Telenet. But you have to understand also that the data growth is really strong in mobile. So it's permanent. So there is a need to invest, I would say, continuously invest in the network. Having said that, we are confident that for 2018 we can do this and provide this capacity without increasing our core CapEx, and we're stabilizing our core CapEx.For 2019, this is something that we will discuss a little bit later. However, I would like to mention that we don't anticipate a significant, I would say, change in CapEx for the core CapEx for 2019.Regarding the Brussels agreement, it is a first step in the good direction and, as such, it deserves to be welcomed. However, it is good to highlight the fact that, first, it is not yet -– the law is not yet passed. It is just an announcement by the minister. So we will remain vigilant on the fact that this results in a change in the law which is absolutely needed.The second element is that it's a first step in the good direction, but it is certainly not the end game; meaning that it is good enough to start rolling out 5G for the first years, but it is certainly not enough to provide the full capacity of the 5G in the midterm. However, I think it is good to see that the public authorities understand more and more the need to bring this additional capacity in Belgium.

[Operator]

We have another question, from Mr. Michael Bishop, from Goldman Sachs.

[Michael Bishop, Equity Analyst]

It's Michael Bishop. Just a couple of questions, please. Firstly, on your guidance, if I look back at the seasonality of 4Q EBITDA and you extrapolate that on top of the EBITDA you've done for the 9 months, it would imply that you essentially get to the bottom end of guidance. Should we be thinking that you could potentially do a bit better than that?And the 2 areas where you seem to be highlighting some better momentum is clearly fixed losses and also the lack of promotions in the market. So my second question is really as you get into the fourth quarter, how do you see the competitive intensity?

[Michaël Trabbia, CEO & Executive Director]

Okay. So maybe I will answer the question on competitive intensity, and I will let Arnaud answer on the guidance.So the competitive intensity remains high in the market. We see a lot of actions, a lot of promotions in the market, especially in the end of the year. We can also expect that at some point of time our competitors react to our offers, and they already have started to do it on some offers, especially when you look for the moment on unlimited voice and they have reacted on offers on unlimited voice.So we are prepared, I would say, to reaction from our competitors, and we are prepared to an active market in the end of the year. However, what we can say is that our commercial dynamic is strong and we are confident with our commercial dynamic that you see in the Q3.Now I will let Arnaud answer on the guidance, the question on the guidance.

[Arnaud Marie Julien Castille, Chief Finance Officer]

So on the guidance, we don't want to change the guidance and even given another guidance. At this stage, yes, we have some improvement in cable, but this improvement is in our guidance. You have to know in terms of Q4 EBITDA, the end of the year it's a period where we have to be cautious and to be active, commercially speaking. So not at this stage. We want to keep this middle range guidance.

[Michaël Trabbia, CEO & Executive Director]

We need to be even very clear. When we said we reiterate our guidance, we didn't say that we had a guidance on the bottom or on the high end of the guidance.

[Michael Bishop, Equity Analyst]

Sure. Maybe if I could just quickly jump onto '19, how do you see the fixed losses trending into '19 based on your comments earlier on the call?

[Arnaud Marie Julien Castille, Chief Finance Officer]

So of course the P&L of our cable is going to improve. It will depend on the cost-plus regulation, on the one side. On the other side, we are going to improve our P&L thanks to again better process, lower churn, economy of scale and so on. So we can imagine to be close to a breakeven EBITDA in 2019.

[Michael Bishop, Equity Analyst]

So that's the whole of 2019, not just the back end when you get the cost-plus? Okay. That's very clear.

[Arnaud Marie Julien Castille, Chief Finance Officer]

On the whole on 2019, the EBITDA, the full EBITDA on cable only could be, with the right regulation, could be close to breakeven EBITDA.

[Operator]

We have another question, from Nicolas Cote-Colisson.

[Nicolas Cote-Colisson]

Just a follow-up on just your answer, Arnaud, on the close to breakup in 2019. When do you -- when you say that, when do you assume the move to cost-plus tariffing?And secondly, on the group EBITDA, on the last call you mentioned that indirect costs in H2 should be equivalent to H1. Now Q3 was pretty low, as you expect, on seasonality. So should we expect a big hike in Q4? Or should we see the positive impact for more direct distribution already in Q4?

[Arnaud Marie Julien Castille, Chief Finance Officer]

So first, on your first question on cable regulation, we expect, but it's just a forecast, a new tariff with the earlier, the better, of course. But in my figures I've just done, we expect the new price in the Q4 2019. But why not before? Again but in my figures, my positive figure, it's Q4 '19.

[Michaël Trabbia, CEO & Executive Director]

The expected calendar from regulation is mid-2019, but we know there is always some potential timing in the implementation. So that's why we remain cautious in our forecast for 2019. But as for regulation calendar and decision, our expectation, I would say, is mid-2019.

[Arnaud Marie Julien Castille, Chief Finance Officer]

And on cost, and I can give you the same answer than before, for Q4, no, we don't expect savings compared to Q4 2017 due to, again, there is a seasonality of our business with more commercial cost at the end of the year. So it will be comparable to 2017, except of course on cable where we are going to improve; but honestly, just a small part of our cost compared to the full commercial and indirect costs.

[Nicolas Cote-Colisson]

If I may just a quick follow-up on taxes in the P&L. It was pretty low in Q3. Can you just give us an idea for the full year?

[Arnaud Marie Julien Castille, Chief Finance Officer]

Maybe explain the Q3, there are some one-offs in Q3 2018, and this one-off will not be repeated on Q4. So taxation at the end of the year will be closer than -- the full year taxation 2017 than the taxation on the Q3 2018. But you know the taxation decreased at the beginning of the year, from 35% to 29%. So that is going to impact our taxation. But there is a one-off in Q3. So it's not the normal tax rate on Q3 2018.Maybe more details if you want, out of the call.

[Operator]

We have another question, from Mr. Ruben Devos.

[Ruben Devos, Equity Analyst]

I had one related to cable CapEx. That has come down from more than 10% in the first 9 months, while you have added more subscribers over that same period. I was wondering whether you could help us understand which elements contributed mostly when we think of refurbishments, churn, IT CapEx, for instance. And then maybe regarding the earlier EUR 350 to EUR 400 variable CapEx per household, is that still a valid range we should think of going into 2019? And then a second question, on the MVNO business. So you still experienced a decline of about EUR 8 million in this quarter, after a decline of EUR 23 million in H1. If I'm not mistaken, you've indicated MVNO trends in H2 to be relatively flat. So do you reiterate that guidance? So basically an EUR 8 million increase in Q4? And a follow-up on that, we've heard several numbers circulate on the MVNO contract with MEDIALAAN. So could you maybe put into perspective how that partnership will contribute as of 2019?

[Michaël Trabbia, CEO & Executive Director]

I will answer on cable CapEx, and Arnaud will answer on MVNO.So on cable CapEx, it is mainly, as you mention, an effect of the refurbishments that help us decreasing the CapEx in Q3. Regarding the amount of the variable CapEx that we have for the new customers, you have to take into account that this is a CapEx per gross add, obviously. So the churn obviously is to be taken into account. But the refurbishment helps us decreasing this cable CapEx.On the MVNO, Arnaud?

[Arnaud Marie Julien Castille, Chief Finance Officer]

On the MVNO, the negative impact compared to 2017 is behind us now because we will have a positive impact of EUR 3 million on Q4 2018. Okay? For next year, you know we disclosed the end of the contract with Telenet, and this year the turnover from Telenet was EUR 40 million. It will be EUR 0 next year. But with the MEDIALAAN deal and some small MVNO deals, the real impact compared to 2018 on 2019 will be minus EUR 20 million. So it's quite a new information. The impact of the MVNO in 2019 will be about EUR 20 million, minus.

[Operator]

We have another question, from Mr. David Vagman.

[David Vagman, Research Analyst]

First question, on cable regulation. So technically, what have you seen so far in terms of SLA improvements on the cable side? Or are discussions evolving with your suppliers, Telenet and VOO? Are they cooperating fairly? And what would be the impact on your churn, your net promoter score among the new [indiscernible]? So that would be my first question.And then secondly, on the mobile net adds, can you tell us when you have seen most of the new net adds? Was it very much more like back-end loaded, in September, let's say?

[Michaël Trabbia, CEO & Executive Director]

Well, on the first question, on cable regulation, there are very strong measures that have been taken by the regulator. Having said that, some of them, the implementation time is not immediate, meaning that we are currently discussing with the regulator the implementation of those measures.Obviously, it is not always easy, I would say, with the cable players, meaning that we need a strong regulator. And fortunately, we have a very determined regulator in front of us to help making sure that the regulation is fully implemented. And we even had recently some decision that has been taken on the fact that there was some obstruction in one specific area of the implementation of the regulation. So it's very important that the regulator remain strongly determined to have this applied.The main improvements expected are related to the single installer process and also to a better identification of the customers. Because today in many cases we have issues with identifying the customers and we need then have a ping pong and manual exchange with the cable player, in particular, Telenet, to make sure that we identify them correctly. So these are the main improvements that we expect. They will be implemented rather in 2019. So this is not yet implemented right now.

[David Vagman, Research Analyst]

And is it a bit slower than expected?

[Michaël Trabbia, CEO & Executive Director]

Well, in the decision there was a 6-months delay to implement the decision. So we fight very hard to make sure that this timing is respected because we don't want to lose more time. And then once again the determination of the regulator is very important to avoid any obstruction there.Then on your question on the mobile net adds, I've no particular comment on the September. What I would comment is that we had globally a very good quarter. It is not something that is specifically very significantly different in September from the global picture. It's really following the launch of our offers in February and in June, where we extended the approach to the majority of our offers.

[Operator]

We have another question from Mr. Stephane Beyazian.

[Stephane Beyazian, European Telecoms Analyst]

Hello. Can you hear me?

[Operator]

Yes.

[Stephane Beyazian, European Telecoms Analyst]

I have 2 questions. Sorry. This is Stephane Beyazian, from Raymond James. The 2 questions, on the commercial side and the nice commercial growth in the third quarter. The first one is, can you quantify or qualify how much of this [ preferment ] comes from the convergence strategy or, more likely, as I understand, from the unlimited features in Eagle, [ Cheetah ] and Koala offers?And coming back on your comment, also that's my second question, on the fact that you're attracting customers on higher-end offers, can you say a little more on the biggest swing factor within your customer base? What I'm trying to understand here is, is it very much a move from Dolphin to Koala? Or is it very much a [ normal ] upgrade on most of the plans? I guess my bottom line is I'm trying to guess how much room for [indiscernible] you think you still have in the base.

[Michaël Trabbia, CEO & Executive Director]

So on your first question, actually it's really both convergence and mobile-only that provide these net adds. When you look at our 53,000 net adds on the contracts, we have 31,000 coming from convergence and 22,000 from mobile-only. So the 2 are supporting this trend.On the mix, since June I would say that the Koala was really, really successful. So it's a big part of the improving mix. So I guess this answers to your question.

[Stephane Beyazian, European Telecoms Analyst]

All right. And sorry, just to follow up on that if I can, I guess it's commercially tentative, but can you give an idea on how much of your customer base is still on the Dolphin plan?

[Arnaud Marie Julien Castille, Chief Finance Officer]

No, we don't disclose the detail of our offers. But you know it's still above 50%.

[Operator]

We have another question, from Mr. Roshan Ranjit.

[Roshan Vijay Ranjit, Research Analyst]

Just a follow-up on some of the questions around mobile mix. Now I think you previously said that Eagle tariff since launching was one of your fastest growing plans. I assume that's the same this quarter. Is it possible to get a sense of percentage of net adds on the Eagle tariffs and maybe, if possible, an idea of what maybe percentage is on the Eagle tariff of your overall base?And secondly, I think you previously said you're quite happy with the level of discounting for the convergent package versus the market. Now clearly, first of all, this led to the step change in the wholesale cost. Is your view still the same there? Or do you think that there is risk for some further promotions? I know in your release you are stating explicitly no promotions this quarter, but going forward, how do you think about that?

[Michaël Trabbia, CEO & Executive Director]

So on your question on the Eagle tariff, what we have seen is an increase of the share of our customers on the Eagle tariff following the unlimiting. However, this remains a high-end offer, so meaning that this is an offer that is, I would say, less than 20% of our customer base. And our, I would say, [ hero ] offer is that of the Koala, which really appeals to the vast majority of the customers, but it was also important for us to have the increase in the high end. But we don't expect the high-end offer to become the mainstream offer.Then on your question on the convergence, and I don't remember your...

[Arnaud Marie Julien Castille, Chief Finance Officer]

Discount compared to [indiscernible].

[Michaël Trabbia, CEO & Executive Director]

Okay. Okay. So on the discount versus the market, yes, we are happy with the positioning of our offer, and what we have demonstrated is by not doing any price promotion this year and still having a very strong net adds in convergence. We believe that we are somehow also protected by the very high value of this segment's competitors, meaning that our simple offer, and that's really what we want to promote, simple offer with unlimited data, unlimited broadband, and without playing on promotion for some months. That's what we claim to our customers. We have simple tariffs and no bad surprise in some months.So we are happy with the positioning. Obviously, we keep monitoring the market, but we continue to be happy with the pricing and you have seen that we never changed our pricing on convergence since the launch.And maybe precision on the 50% below the Koala, it's not only Dolphin. It's also Humming Bird. So the good news, there is a lot of people below the package of EUR 20 to be able to be upselled, looking forward.

[Operator]

We have another question, from Mr. Stefaan Genoe.

[Stefaan Genoe, Head of Equity Research]

Stefaan Genoe, Degroof Petercam. First, could you give us indication the customers you've gained, what type of customers are they? Are there more from the south or from the north? Or more from the cable operators or from the incumbent? That's the first question.And second question, you mentioned that for your budget on the convergence offer next year you anticipate EUR 15 wholesale price. Is this an average? Or do you take a separate pricing for the broadband-only and for the dual play next year? And what would be the level of the dual play and the single play broadband you expect for next year, for second half next year?

[Michaël Trabbia, CEO & Executive Director]

So on the split of our convergence customers, what we see it's really interestingly is that while we were much stronger in the mobile on the south and Brussels region, our success in convergence is very much balanced compared to the population, meaning that we have strong success in whole the country, including Flanders.And this also supports, by the way, our mobile positioning and our mobile net adds in Flanders, which used to be, I would say, a little bit less good than in the French-speaking part of the country. So this is very interesting to observe that.In my view, this reflects also the different competition landscape in the north where the prices are higher with Telenet compared to the south. So this is something we clearly benefit.And then we continue to have customers coming from all the operators. It may vary a little bit depending on the month and depending on the commercial activity, but it is quite balanced, I would say. But this may be impacted also by the fact that the cable operators may support or not us into acquiring Proximus customers to their network. And when they are able to support us, then we can attract also Proximus customers. When they are not able or they do not want to support us, then obviously it is easier for us to attract already cable customers.And then on your second question, on the wholesale price, what I will comment is on our expectation towards regulation, and maybe Arnaud will comment on what is in the forecast and what has been -- what we took.From regulation, yes, we mentioned that our ambition was and we believe that the EUR 50 price point was something achievable for the broadband and TV. And we believe that there is an additional discount around EUR 5 that should be attributed for broadband on the wholesale. Now obviously, this is somewhere, I would say, likely the maximum that we can expect.

[Arnaud Marie Julien Castille, Chief Finance Officer]

And on our model for 2019, as we said, we stay cautious. So I don't want to disclose exactly the figures we put in our model, but it's a cautious calculation compared what we are expected to. So it will be close to breakeven with a cautious price. As we mentioned, again we put this decrease only in Q4 despite we are waiting for a decrease before Q4. So yes, it's a cautious calculation. We are quite confident to achieve this breakeven in 2019.

[Operator]

We have another question, from Mr. Guy Peddy.

[Guy Richard Peddy]

It's Guy Peddy from Macquarie here. Slightly a bit technical question. Your CapEx is obviously running flat year-on-year, well below what you're actually doing with your depreciation and amortization. So can you just remind us what assets you're aggressively depreciating or amortizing within your balance sheet? And when do you think your D&A will actually start to normalize?

[Arnaud Marie Julien Castille, Chief Finance Officer]

The main impacts in terms of amortization are the amortization from cable. As you know, we have to amortize very quickly the boxes for our customers, the boxes of our customers. So it's the main impact on our amortization. So yes, we will be close to a stable situation maybe in 2, 3 years when we will reach a certain level of customer base. So at this stage it's quite important. The evolution is quite important because we are doubling the base between '17 and '18. So yes, there is a big impact of these boxes, which are amortized very quickly.

[Operator]

We have another question, from Mr. Emmanuel Carlier.

[Emmanuel Carlier, Former Equity Research Analyst]

Emmanuel Carlier, Kempen. 2 questions, 1 on the cable wholesale costs. I'm a bit surprised you expect a drop of EUR 5 to EUR 10 depending on broadband standalone or including TV, especially taking into account that the copper wholesale cost is at around [ EUR 16 ] for broadband standalone and that cable is a better network. So could you expand a little bit your reasoning why you believe that is realistic? Also taking into account that the regulator also wants to stimulate investments in the fiber network.And then secondly, I was also surprised by your statement that you expect to be breakeven on full year '19 EBITDA on the cable side. I think previously you guided to achieve that only towards Q4 '19. So maybe if you could trend through the elements that have made you a little bit more optimistic on that one?

[Michaël Trabbia, CEO & Executive Director]

So on the cable wholesale cost, first, you have to take into account that this is a cost-plus methodology that will be applied. So obviously, you can compare different networks, but the methodology is not to compare networks; it is to take into account the real cost of the cable network. And what we see in benchmarking other countries is that we believe that this price is something that is achievable when we look at what happened in other countries. And then when you mentioned the copper regulation, I think it is also fair to mention that this regulation does not work. Nobody uses it for B2C operations. So this is, I would say, more or less a shadow regulation that is not really used.Then on EBITDA breakeven, certainly it's important to remind that it's EBITDA. We still have CapEx on cable. I will let Arnaud answer your question.

[Arnaud Marie Julien Castille, Chief Finance Officer]

As we explained, we have improved our own process. It's not only a question of wholesale price. And as we disclosed, the minus EUR 13 per customer impairments are better than we disclosed before due to again better churn, less customer service costs and so on. So again we believe this improvement is going to impact 2019. So it's thanks to this better achievement we can be confident in 2019 more than before.

[Emmanuel Carlier, Former Equity Research Analyst]

Okay. And maybe 1 last question from my end. On the fourth mobile entrant, so that was negotiated during a summer agreement in Belgium. The summer agreement is not getting fully executed. Do you believe there is a probability that the government might also change their mind on that topic?

[Michaël Trabbia, CEO & Executive Director]

Well, you're right: it was part of a global government agreement with several elements, and some of them are complex to execute, I would say. But this is not what I will comment. We do not expect for the moment and we do not have any signal that the government would change his mind, not on introducing a fourth player but on putting favorable conditions for a potential new entrant. I think it's fair and it's also good to remind this that it's not the government who decides to have a fourth player in the market. At the end of the day there must be 1 player that believes it has a business case to enter Belgium, and this is something that we think is really challenging, to say the least. But to answer directly your question, we don't anticipate for the moment that the government might change his view on this topic.

[Operator]

We have another question, from Mr. Alexandre Iatrides.

[Alexandre Iatrides, Analyst]

Alexandre Iatrides, ODDO BHF. I had a few questions. The first is could you maybe comment if you have the proper regulation in cable, going forward, what would be your estimation of the normative margin that you could achieve in fixed? Will it be much higher? Or just breakeven is already a great goal?The second is could you comment maybe a little bit on VOO, if there is something that has been evolving there? And what do you think is going to happen on the M&A side, either you or somebody else may merge with them? Or do you think they're going to remain forever a standalone player?And the third one would be if you could comment on spectrum auction that's going to happen next year? You have a lot of spectrum that's going to come into the market next year with a lot of reform 900, 1800, [indiscernible] and also the famous 3.5 gigahertz that became crazy in Italy. What would be your assumption on, like, let's say, the big rent that we could expect for the total spectrum next year?

[Michaël Trabbia, CEO & Executive Director]

So on your first question, on the cable margin, maybe first I would like to comment that it is important to have a positive margin because there are also CapEx that we need to pay for. So the objective is not to be 0% margin but is to be able to have a sustainable business, meaning to be able to pay back for the CapEx. And this is important that you have this into account. Positive margin is needed to pay for the CapEx, the cable CapEx.On the question on VOO -- and just to be clear, our ambition is really to have a sustainable standalone business on the cable, meaning that our EBITDA, we have a return at least a 0% return on investment on cable.On VOO, it is fair to say that there has not been any news in this perspective. As you probably know, there have been elections recently in Belgium at the local level and there will be elections at the federal level in May next year. So what we see for the moment is that there is rather a status quo on the VOO side. Obviously, things might evolve, but for the moment that's the comment I can make. No signal of any evolution regarding VOO on any direction, I would say, on this dossier.Then on your last question, about the frequency, there will be a lot of frequencies, as you mentioned, because there will be the 5G frequencies, but also the renewal of the existing 2G, 3G, 4G frequencies that are used. The setup of the auction is not the same as in Italy. It's much more balanced, especially in the 3.6 gigahertz. There is part of the spectrum that is somewhere guaranteed somehow for each player in the auction, meaning that the risk there is much more limited. The biggest risk, obviously, is linked to a potential fourth entrant in the market. But when you look specifically on the 3.6 gigahertz element, there is spectrum reserved for existing and potentially new operators in this band, as from the Belgium draft rules.

[Operator]

We have another question, from Nicolas Didio.

[Nicolas Didio, Analyst]

Nicolas Didio, from Berenberg. I have 3 questions, please. First, coming back to your intro when you say you want to challenge the status quo in convergence and mobile, what about broadband-only? Are you waiting for the 2019 change of regulation to change your view on broadband-only? Or you are, let's say, concretely working on that?The second question is regarding the B2B. It's kind of difficult to get a sense of is there any acceleration of the B2B segment. So can you give us a bit of color there?And the last question is about IFRS 16 starting January 1. Can you give us a glimpse of the impact it will have on your numbers, please?

[Michaël Trabbia, CEO & Executive Director]

So I will take the question on broadband-only, B2B, and Arnaud will answer on the IFRS.So regarding broadband-only, actually new regulation is needed. It's both technical implementation that is needed because it's not only about price and the wholesale price; it's about having the right access that has to be implemented by the cable operators, which is not the case today. So we have to wait, and this is not something that we are going to be able to launch before next year.But yes, it is clear for us that we want to enter into this segment and to continue our positioning there. We believe that there is room for us to continue improve the offers for the customers, because in Belgium customers don't have access to really attractive offers on broadband-only.Then on B2B, what I can mention is that figures are increasing. We are improving our figures on the B2B. It is not yet at the level we could expect in a market with a very strong and dominant player as the incumbent in the B2B. So we continue to work there to improve our distribution channels and improve also our offers in order to be more and more competitive in the B2B. It is already -- we already have some successes there, and I think it's important to notice, but we want to continue.At the same time, it's important to notice that the regulation has been also taking more and more into account the B2B, especially with the fiber, because in the regulation we talked a lot about the cable regulation, but there is also regulation on fiber that is useful and that will be useful for B2B. So this is something that will be also important for the future.

[Arnaud Marie Julien Castille, Chief Finance Officer]

On the third question, on IFRS 16, as you know, now before IFRS 16 we have leases and rental costs in our P&L. And tomorrow, IFRS 16, instead of rental costs we will have amortization and financial costs linked with these leases. So it will be quite easy for Orange Belgium. We are going to disclose a new EBITDA, an EBITDA after amortization and financial costs linked to these leases. So the EBITDA IFRS 16, the new EBITDA IFRS 16 will be very, very close to the EBITDA today. So the impact of IFRS 16 will be very, very small. And so you can keep your model at this stage, and there is no big change in our disclosure because we are going to change from EBITDA to a new EBITDA where we are going to include financial costs and amortizations.And we have done the calculation. So it's very, very small change.

[Operator]

We have another question, from Mr. Martin [ Amashi ].

[Unknown Analyst]

I've got 2, please. [indiscernible] on the mobile net intake, it was obviously very strong. I'd like to know how should we think about that, going forward. Do you think you can achieve a similar intake in the future? Or has this quarter been a bit special, apart from the tariff update?And second, on convergence, with wholesale cost getting lower and achieving better -- Orange Belgium achieving better operational efficiencies, could you give us a sense of how do you think about profitability versus accelerating intake? You have talked about achieving EBITDA breakeven, but would you consider accelerating customer growth from here? Or is profitability more of a focus for next year?

[Michaël Trabbia, CEO & Executive Director]

Well, on the mobile intake, it is clearly our ambition and our positioning to continue with a very good commercial dynamic. Obviously, it depends on market conditions. But we believe that we have the good positioning in the market to have strong and stronger than before net adds in the mobile. And this we have achieved very strong results in Q3. So we will see, I would say. Every quarter is a battle to win, but we believe that all in all we can achieve stronger net adds than before, I would say, before this new positioning.And then on convergence and efficiency, maybe, Arnaud, you want to answer?

[Arnaud Marie Julien Castille, Chief Finance Officer]

So the focus for 2019 will be as the same as in 2018. It's mainly customer service. You know, first, because there is an economy of scale in customer service. We have a team able to tackle the issue on cable and we are not going to increase so much the team, except on call of course. So yes, it's mainly customer service. IT also, because there is some IT maintenance for the cable. And so again there is behind that an economy of scale. So yes, we can on average have a savings of EUR 2 on OpEx per customer and per month on costs; indirect costs, not wholesale or content cost, but in indirect costs. If I understood well your question.

[Unknown Analyst]

The question was, how do you think about with all these cost savings coming through, you said you were basically investing them in the customer service. Or would you consider accelerating the customer intakes or the runway that we have from this year? Would you consider going harder for customers?

[Michaël Trabbia, CEO & Executive Director]

I will answer there. Once again, we are happy with the intake of our cable customers. Our ambition -- and also in the fixed business it's very important to have steady operation and steady growth rather than to have bursts, because then you have issues with your operation, with your installers, with your teams.So our mission is to continue with the current trend that we have on the market, which is already an important target. Because the more we increase our base, also the more the churn might impact us. For the moment it is mitigated by the fact that we managed to lower the churn rate. But obviously the bigger the base, the more impact. So it's for us, I would say that we are happy with the current trend in the net adds in the quarter, the net adds in convergence.Then we will see with the broadband-only if it can support a little bit more. So we will see that rather in 2019 and rather in H2 2019, more likely.

[Operator]

We have another question from Mr. Nicolas Cote-Colisson.

[Nicolas Cote-Colisson]

It's going to be a quick one. Just on the brand fees you are to pay to Orange next year, is that still right to think about around EUR 10 million? And is it incremental cost? Or does it replace some of the existing costs you have with Orange at present?

[Michaël Trabbia, CEO & Executive Director]

Arnaud will answer you.

[Arnaud Marie Julien Castille, Chief Finance Officer]

The impact, yes, it will be close to EUR 10 million in 2019. And it's just for half-year, because the commitment from Belgium will start in half year 2019. So it will impact mainly Q3 and Q4. And we have already changed of course with Orange and some services coming from Orange, but there is no link with the brand. So we don't disclose the interco between Orange and Orange Belgium Group.

[Nicolas Cote-Colisson]

Okay. But we can say that this EUR 10 million and then EUR 20 million will be incremental costs?

[Arnaud Marie Julien Castille, Chief Finance Officer]

Excuse me, Nicolas?

[Nicolas Cote-Colisson]

So we can say that this EUR 10 million next year and EUR 20 million in the following years will be incremental cost. It won't be offset by anything else.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Yes. Yes. Yes. It's totally incremental.

[Operator]

We have one last question, from Mr. [ Rudy Shanada ].

[Unknown Analyst]

You mentioned churn in fixed several times in answers. Could you give us some indication where the churn rate currently is in fixed, and also to what extent the plan for aiming at breakeven in fixed next year is actually driven by a material reduction in the rate of churn in your planning?And the second question is, coming back to the previous one, I think you're paying Orange for sort of skills and, in particular, on the cable side, if I'm not mistaken. So again with regards to the plan to get to EBITDA breakeven next year, is there a material part here of lower external costs to Orange where you have sort of a great visibility and that underpins your confidence? Or is this not the main reason for the reduction in cost that you foresee, this EUR 2?

[Arnaud Marie Julien Castille, Chief Finance Officer]

On Churn, as you know, we don't disclose the churn, even for the mobile business. So what I can say, again relatively speaking, it's going to decrease. It's going to decrease, and it's still higher than the churn of our competitors. So our target is still to decrease this churn. So it's I think the only comment I can make at this stage.

[Michaël Trabbia, CEO & Executive Director]

It's significantly higher than competition. This is also explained by the fact that it's a new base. So new customers are churning more. But it's not the only effect. At the same time, I think Arnaud already also mentioned that the churn regularly decreases on convergence, but we don't want to disclose this as it is very sensitive information.And on your second question, could you please reformulate? Because I'm not sure to have understood completely what you asked.

[Unknown Analyst]

It's a bit of a stab in the dark, to be honest, because, as you say, you don't disclosing all the intra-Group sort of payments to Orange. But my understanding at least is that part of the -- is that you're also sort of getting skills and maybe consultancy services from Orange on the fixed side, as well. And I'm just wondering whether the target for EBITDA growth, which has been provided several times during this Q&A, that had a contribution of materially lower consultancy costs such as those for Orange, and that sort of gives you the confidence to talk to us about EBITDA breakeven, that (inaudible). Or is that not true?

[Michaël Trabbia, CEO & Executive Director]

So maybe first to remind that the Orange fees that we are paying, we have some services and we have some benefits in front of them. They are not necessarily linked to the decrease in cost that we have forecast for the cable. But we have strong support, obviously, from a technical perspective in many parts. It's true on the cable, but it's also true on the mobile, for instance, especially with the 5G coming.I also want to highlight the fact that the purchasing power that we have is really strongly helped by the Orange Group thanks to, in particular, [ buying ]. So we have a purchasing power that is a material advantage for us.Then there is also a big advantage when you talk about the interconnection and the roaming cost that we have. This is more and more important with the roaming regulation because this has increased a lot. And being part of the Orange Group, we can have a particular agreement with the other affiliates but also with other telcos that partner with the Orange Group, meaning that we manage to host more customers on our network and that we manage to have better costs for our customers roaming elsewhere, especially in Europe, but not only. And finally, talking about the brand fees, I think it's also important to highlight that even if it's not something that will be different from this year, we benefit since the introduction of Orange brand from a campaign, one of the commercial brand campaign that is paid by the Orange Group. So we have also some contribution there. Also on the brand, Arnaud mentioned that it will not -- in 2019 the impact will be net because we have already started to benefit from this since the introduction of the brand, even if we delay the first payment of the brand fees.

[Operator]

We have no further questions. I'll now return the floor to Mr. Arnaud Castille. Sir, please go ahead.

[Ana Catalina Castaño Lopez, Investor Relations Expert]

Thank you all. With this, we end up our Q&A session for the third quarter of 2018. Thank you all for participating, and we wish you a good afternoon. Thank you.

[Operator]

Ladies and gentlemen, thank you for your participation. You may now disconnect.